6 tax changes affecting freelancers in Germany in 2023

The government has worked on a new tax act. This tax law was passed by the Bundestag and will result in numerous tax changes and various tax reliefs in 2023. Here we tell you what they are and how you can benefit from them as a self-employed professional! 

What changes in 2023? More net from gross income

The effects of the war in Ukraine, including the energy crisis and inflation, are clearly felt by all of us, especially in the form of rising electricity, gas and food prices. In order to reduce these and other financial burdens, the federal government has planned various tax changes for 2023 as part of the Annual Tax Act 2022. This should counter inflation and leave us all with significantly more net from the gross.

The planned new tax laws and tax reductions for 2023 are intended to affect several different areas. Wether it’s the Grundfreibetrag (basic tax-free allowance), child benefit or homeoffice allowance: depending on your life situation and the amount of your income, you can get even more out of your tax return this year!

1. Grundfreibetrag (basic tax-free allowance)
2. Kindergeld (child benefit)
3. Unterhalt für ältere Kinder (child benefit for older kids)
4. Homeoffice
5. Umsatzsteuer für Photovoltaik (VAT for photovoltaics)
6. Sparerpauschbetrag (saving allowance)

1. Grundfreibetrag (basic tax-free allowance) rises to 10,908 euros

The Grundfreibetrag, meaning the maximum amount of your income for which no tax is due, will increase from 10,347 euros to 10,908 euros from the first of January 2023. This means that you will be able to earn 561 euros more tax-free in 2023. For married couples and registered partners, twice the amount, i.e. 21,816 euros, will remain tax-free. A further increase of 300 euros is planned for 2024. Even if you earn more, you will benefit from the increase in the basic tax-free amount, as a larger part of your income will remain tax-free.

Income tax is therefore only due if you exceed this new Grundfreibetrag. The tax rate starts at 14% and increases with increasing income. But there is a problem: Inflation automatically cancels out any increase in your income due to the general rise in costs of living. As a result, you would have to pay even more of your income with a higher tax rate, even though you can afford less. In order to counteract the so-called “cold progression”, the tax rates have been adjusted to inflation:

• The top tax rate of 42%, only applies if your annual income is higher than 62,810 euros instead of 58,597 euros.

• Those who have to pay tax on less than 66,915 euros in 2023 also do not have to pay the solidarity surcharge.

2. Kindergeld (child benefit) increases 

Especially families with children should benefit from the tax relief in 2023. Therefore, the Kindergeld for the first three children is to increase next year (219 euros for the first and second and 225 euros for the third child) to 250 euros per child and month. The child benefit of 250 euros from the fourth child onwards will remain unchanged. With three children, this means 750 euros per month instead of the previous 633 euros. This is 13% more and thus the largest increase in child benefit to date!

What will also be increased is the Kinderfreibetrag (child allowance). It is deducted every year from your taxable income per child and thus reduces your amount of income tax to be paid. However, Kindergeld and Kinderfreibetrag are compared with each other and what is more beneficial to you will be applied in your specific case (this is called “Günstigerprüfung”). The Kinderfreibetrag will increase by 404 euros per parent to 6,024 euros in 2023. From 2024, a further increase of 360 euros to 6,384 euros is planned.

3. Child support and subsidies for single parents rise in 2023

According to the law, Kindergeld (child benefit) is only available for children under the age of 25. However, parents who want to continue to financially support their older children beyond this age can count on further tax relief from 2023: Up to 10,908 euros can be additionally deducted from taxes as Unterhalt (child support), plus contributions for health insurance for children over 25 years of age. Only if the income of the respective child rises above 624 euros per month, it reduces the deductible amount.

In addition, the Entlastungsbetrag, meaning the subsidy for single parents will increase by 252 euros to 4,260 euros next year. This will additionally reduce the tax burden of single parents. So if you are a single parent and are in tax class II or change to tax class II, you can already benefit from the relief amount during the monthly income tax deduction.

4. Homeoffice allowance rises, will be offset against travel expenses

Do you work from home frequently or even completely? Perfect, because thanks to the increase in the homeoffice allowance, this year you can claim 6 euros per day for up to 210 days per year. That’s a maximum amount of 1,260 euros. Previously, only 5 euros for a maximum of 120 days in the homeoffice could be claimed from the tax office and the maximum amount was only 600 euros.

Note, that if you commute back and forth between your desk at home and your office, you have to decide between the homeoffice allowance and the Pendlerpauschale (commute allowance). On homeoffice days, you generally have to skip the allowance for travel expenses. You can only claim both if you need another workplace for certain activities in addition to the office. For example, as a teacher: In the morning you teach at school, while in the afternoon you prepare or correct lessons at home.

💡Tip from Accountable: Here is what you can deduct in your homeoffice and how to make use of the homeoffice allowance!

5. Photovoltaic systems and VAT in 2023

Do you own a smaller photovoltaic system that’s on your roof? As a private owner who earns money with such photovoltaic systems, you will also benefit from tax reliefs in 2023. From January 2023, these systems will be exempt from income tax and VAT. However, the following conditions apply:

• The power of the photovoltaic system in single-family and two-family houses and buildings without living space must not exceed 30 kilowatts.
• In multi-family houses, the system must not produce more than 15 kilowatts per residential unit.
• In the case of several systems on different buildings, the maximum output must not exceed 100 kilowatts in total.

In addition,VAT (value-added tax) will no longer be charged on the purchase, delivery, and also installation of photovoltaic systems and electricity storage systems.

The aim of the new regulations is to reduce tax bureaucracy for owners of smaller photovoltaic systems. This means that the 2023 tax changes will affect self-employed persons that are Kleinunternehmer (small business regulation): Because up to last year, owners of photovoltaic systems that feed into the public grid could be exempted from paying VAT with the Kleinunternehmer regulation, when their revenue didn’t exceed the threshold of 22,000 euros per year. This is now no longer necessary.

6. Benefits for savers and pensioners

The so-called Sparerpauschbetrag (savers allowance) will increase from 801 euros to 1,000 euros. For married couples, it will be 2,000 euros. The allowance ensures that capital income, such as interest and dividends, is tax-free. The increase, therefore, leaves you with a little more of your earnings if you have invested money.

There will also be tax relief on pensions and retirement savings in 2023: Both pension insurance contributions and other retirement provision expenses, such as occupational pension provision, can be claimed as special expenses at 100% against tax in order to avoid double taxation.

➡️ Pension plans in Germany? This is how it works!

💡Accountable is the tax solution for the self-employed. Download the free app or create an account online. This way, you have your bookkeeping and tax obligations like VAT returns under control right from the start. Our team will also help you personally in the chat at any time!